Introduction
Importers and exporters around the world are expected to comply with regulations related to sanctions
However, these are not the only parties that must be careful with their international dealings
Trade finance institutions are also supposed to meet all the criterion related to international sanctions on certain nations
The inability to meet these rules could result in massive fines for these institutions
One such case has emerged in recent times, as Union de Banques Arabes et Françaises (UBAF), a that provides trade finance services, has been fined for breaching sanctions related to Syria
The penalty was as high as $8.5 million, indicating the seriousness of the offence in the eyes of the regulators
This blog discusses the key aspects of this penalty and analyses its implications for the wider trade finance industry
Trade finance lender hit with $8.5mn penalty
The Office of Foreign Assets Control (OFAC) investigated the transactions undertaken by UBAF over the past few years
The investigation revealed that this bank processed as many as 127 transactions on behalf of Syrian finance companies between the years 2011 and 2013
The total value of all these transactions was as much as $2 billion, indicating the severity of the breach
It was also found that UBAF had issued 13 letters of credit to its clients in Syria. All of these were clearly in breach of the rules laid down by OFAC
The US had placed additional sanctions on Syria in 2011 and clearly indicated that banks are not allowed to indicate with Syrian parties
The bank was also found to be engaged in USD clearing for financial institutions in Syria, something that is prohibited under the regulations of OFAC
The final penalty imposed on the bank was $8.5 million. This penalty was lowered by OFAC because the bank cooperated with the investigation and provided transaction details voluntarily
This case indicates the potential dangers faced by trade finance institutions. Dealing with foreign parties is always a complicated task, and these institutions must carry out complete due diligence before proceeding
In the absence of such due diligence, the repercussions could be severe
It is also important to note that financial institutions can be penalised by the US even if they do not have a presence in the US market
This is because the sanctions are applicable on a global level
Conclusion
To conclude, this development highlights the need for lenders to be extremely careful while dealing with overseas clients. In case your organisation is unclear about any aspects of business, you can always reach out to the experts. Institutions such as Euro Exim Bank offer customised support to traders in the form of financial instruments and bespoke trade advisory services. Euro Exim Bank offers financial instruments such as Bank Guarantees and Letters of Credit (LCs). Further information about Euro Exim Bank and its key product offerings is available here.
